Banks call in help to restructure debt

Banks call in help to restructure debt

Lenders to Premier Foods, the owner of Hovis bread, have hired advisers to help push through a speedy reduction in the company's vast debt burden, The Sunday Telegraph has learnt.


Deloitte, the accounting firm, has been appointed by Lloyds TSB and Royal Bank of Scotland, Premier's principal bankers, to act on behalf of the company's 35-strong lending syndicate. Among the options being considered is a relaxation or renegotiation of Premier's key borrowing covenants, which could provide it with some additional breathing space as it struggles to reduce its £1.7bn debt.

The recruitment of a specialist adviser underlines banks' growing concern about the levels of debt held by many companies at a time when servicing borrowings has become significantly more expensive and they are facing turbulent economic headwinds.

The fact that in Premier's case the main lenders are two of the banks which are to receive taxpayers' money as part of the banking industry's recapitalisation plan also underlines the political sensitivities likely to be involved in many negotiations with corporate borrowers in the months ahead.

Premier, which counts Branston Pickle and Angel Delight, the dessert range, among its other brands, is understood to be trading strongly, and will update the City on its sales performance on November 18.

The company, which is led by Robert Schofield, chief executive, is understood to have tabled a series of proposals to its lenders in recent days. None of these are thought to focus on the disposal of any of its leading brands, despite speculation – denied by Premier – that Mr Kipling, its cakes range, is to be sold.

 


However, unless Premier manages to avoid a covenant breach or secure the renewed support of its banks, it may come under pressure to reconsider offloading such assets. Attempts earlier this year to sell the units which make own-label products for supermarkets were unsuccessful, partly because one proposed deal involved Icelandic financing, and others because bidders did not match Mr Schofield's price expectations.

The borrowing covenant that Premier is understood to be closest to being in breach of is understood to be one based on the ratio between the level of debt to the company's earnings before interest, tax, depreciation and amortisation.

Last month, the company was forced to issue a statement denying it was in breach of its borrowing arrangements after a precipitous fall in its share price triggered by mounting concerns over its financial health.

 

Next year's covenant tests are understood to be stricter, and Mr Schofield is keen to settle the issue before then in order to refocus City analysts on the company's growth prospects.

Premier's recent share price collapse also prompted the termination of talks with private equity firms, including CCMP Capital, which had been discussing a capital injection.

Debt Questions

Deep in debt? Desperate? Call in the voice of calm
Gurinder Dulai couldn’t be better qualified for his job as an adviser on the National Debtline. read more

Couples seeking debt and marriage advice
Couples are increasingly turning to debt and relationship counseling as the economic crisis. read more

Credit crunch bears down on FE sector
Colleges have run up record levels of debt, casting doubts on the future of the rebuilding programme. read more

Economics questions answered
A year ago, not so many conversations in the pub or around the dinner table would have been dominated by the economy. read more

Remuneration question over New Star
Questions were last night growing over the ability of New Star Asset Management. read more